Below is a raw (and likely hideous) rendition of the
original report.
(PDF)

Issue Date
June 15, 2010
Audit Report Number
2010-CH-1008
TO: Steven E. Meiss, Director of Public Housing Hub, 5APH
Barbara Knox, Director of Fair Housing and Equal Opportunity Hub, 5AEH
FROM: Heath Wolfe, Regional Inspector General for Audit, 5AGA
SUBJECT: The DuPage Housing Authority, Wheaton, IL, Inappropriately Administered Its
Section 8 Project-Based Voucher Program
HIGHLIGHTS
What We Audited and Why
We audited the DuPage Housing Authority’s (Authority) Section 8 Project-Based
Voucher program (program). The audit was part of the activities in our fiscal year
2009 annual audit plan. We selected the Authority as part of our internal audit of
the U.S. Department of Housing and Urban Development’s (HUD) oversight of
the program and based upon our analysis of risk factors relating to the housing
authorities in Region V’s jurisdiction. Our objective was to determine whether
the Authority effectively administered its program in accordance with HUD’s
requirements and its administrative plan. This is the second of two audit reports
on the Authority’s program.
What We Found
The Authority inappropriately administered its program. It lacked the required
eligibility documentation for its program projects to support more than $3.4
million in housing assistance payments. Further, it made improper housing
assistance payments totaling more than $33,000 for eight months before the
effective dates of two housing assistance payments contracts.
The Authority executed housing assistance payments contracts with inappropriate
contract rents. The contract rents for 6 of the Authority’s 11 projects exceeded
the maximum allowable amounts according to HUD’s requirements. Based on
the inappropriate contract rents, the Authority overpaid nearly $270,000 in
housing assistance. We estimate that over the next year, it will overpay more than
$90,000 in housing assistance due to the improper contract rents.
The Authority did not properly select program households from waiting lists. It
allowed its program projects to select the households and did not perform quality
control reviews of the selection process. As a result, it inappropriately paid more
than $188,000 in housing assistance for 14 households that did not meet project
eligibility requirements and was unable to support more than $57,000 in housing
assistance payments for 3 households. Further, it underpaid $200 in housing
assistance for two households. We estimate that over the next year, the Authority
will pay more than $100,000 in housing assistance for households that do not
meet project eligibility requirements.
What We Recommend
We recommend that the Director of HUD’s Chicago Office of Public Housing
require the Authority to (1) reimburse its program from non-Federal funds for the
improper use of more than $600,000 in program funds, (2) provide documentation
or reimburse its program from non-Federal funds nearly $4 million in program
funds, and (3) implement adequate procedures and controls to address the findings
cited in this audit report. These procedures and controls should help to ensure
that nearly $200,000 in program funds is spent on program administration that
meets HUD’s requirements over the next year. We also recommend that the
Director of HUD’s Chicago Office of Fair Housing and Equal Opportunity review
the Authority’s household selections to ensure that they comply with HUD’s
requirements. If the Authority fails to comply with HUD’s requirements, then
HUD’s Director should take appropriate action against the Authority and/or its
applicable employee(s).
For each recommendation without a management decision, please respond and
provide status reports in accordance with HUD Handbook 2000.06, REV-3.
Please furnish us copies of any correspondence or directives issued because of the
audit.
Auditee’s Response
We provided our review results and supporting schedules to the Director of
HUD’s Chicago Office of Public Housing and the Authority’s executive director
during the audit. We also provided our discussion draft audit report to the
Authority’s executive director, its board chairman, and HUD’s staff during the
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audit. We held an exit conference with the Authority’s executive director on May
5, 2010.
We asked the Authority’s executive director to provide comments on our
discussion draft audit report by June 1, 2010. The Authority’s executive director
provided written comments, dated June 1, 2010. The executive director disagreed
with findings 1 and 2, but agreed with finding 3. The complete text of the
auditee’s response, along with our evaluation of that response, can be found in
appendix B of this report except for 1,193 pages of documentation that was not
necessary for understanding the Authority’s comments. A complete copy of the
Authority’s comments was provided to the Director of HUD’s Chicago Office of
Public Housing.
3
TABLE OF CONTENTS
Background and Objective 5
Results of Audit
Finding 1: The Authority Did Not Maintain Adequate Documentation to
Support the Eligibility of Its Projects 6
Finding 2: The Authority Executed Housing Assistance Payments Contracts
With Inappropriate Contract Rents 11
Finding 3: The Authority Did Not Properly Select Program Households From
Waiting Lists 13
Scope and Methodology 16
Internal Controls 18
Appendixes
A. Schedule of Questioned Costs and Funds To Be Put to Better Use 20
B. Auditee Comments and OIG’s Evaluation 21
C. Federal Requirements and the Authority’s Program Administrative Plan 34
4
BACKGROUND AND OBJECTIVE
The DuPage Housing Authority (Authority) was established by the State Housing Board of Illinois
in September 1942 under the laws of the State of Illinois to provide decent, safe, and sanitary
housing. The Authority is governed by a seven-member board of commissioners (board) appointed
by the chairman of the DuPage County Board to 5-year staggered terms. The board’s
responsibilities include overseeing the administration of the Authority and approving policies. The
board appoints the Authority’s executive director. The executive director is responsible for ensuring
that policies are followed and providing oversight of the Authority’s programs.
The Authority administers a Section 8 Housing Choice Voucher program funded by the U.S.
Department of Housing and Urban Development (HUD). It provides assistance to low- and
moderate-income individuals seeking decent, safe, and sanitary housing by subsidizing rents with
owners of existing private housing. As of March 30, 2010, the Authority had 2,613 units under
contract with annual housing assistance payments totaling more than $21.4 million in program
funds.
On January 1, 2005, the Authority executed its first Section 8 Project-Based Voucher program
(program) housing assistance payments contract. The Authority may use up to 20 percent of its
Section 8 Housing Choice Voucher program funding for newly constructed, existing, or
rehabilitated program units. Households must live in the program units for a minimum of 1 year.
After the initial year, the households may join the Housing Choice Voucher program, provided there
are vouchers available. The Authority made housing assistance and utility allowance payments
totaling more than $4 million for 203 program households between January 1, 2005, and March 31,
2010.
This is the second of two audit reports of the Authority’s program. Our objective was to determine
whether the Authority effectively administered its program in accordance with HUD’s requirements
and its program administrative plan to include determining whether it (1) maintained adequate
documentation to support project eligibility, (2) executed housing assistance payments contracts
with appropriate contract rents, and (3) appropriately selected program households from the waiting
list. The first audit report (report #2009-CH-1016, issued on September 28, 2009) included one
finding. The objective of the first audit was to determine whether the Authority (1) maintained
adequate documentation to support program household eligibility and (2) accurately calculated
housing assistance and utility allowance payments.
5
RESULTS OF AUDIT
Finding 1: The Authority Did Not Maintain Adequate Documentation to
Support the Eligibility of Its Projects
The Authority administered its program contrary to HUD’s requirements. The problems
occurred because the Authority lacked an understanding of the program regulations and failed to
implement adequate procedures and controls to ensure that HUD’s requirements were
appropriately followed. As a result, it was unable to support the use of more than $3.4 million in
housing assistance payments and inappropriately paid more than $33,000 in housing assistance.
The Authority Inappropriately
Administered Its Program
We reviewed 100 percent of the Authority’s program projects that received housing
assistance between July 1, 2007, and August 31, 2009. The 11 program projects
contained 187 units. The program project files were reviewed to determine whether
the Authority maintained documentation to support the projects’ eligibility. Our
review was limited to the information the Authority maintained in its program
project files.
The Authority inappropriately administered its program when it failed to follow all
of HUD’s program requirements at 24 CFR (Code of Federal Regulations) Part 983
before approving and contracting units for housing assistance. It did not
• Issue appropriate requests for proposals,
• Properly evaluate project proposals,
• Request HUD approval for projects with conflicts of interest,
• Ensure that agreements and housing assistance payments contracts included
the required elements,
• Ensure that environmental and subsidy-layering reviews were conducted for
all of its program projects,
• Conduct rent reasonableness determinations for all program units, and
• Conduct housing quality standards inspections for all program units.
Further, the Authority made $33,632 in retroactive housing assistance payments
for two projects for 8 months before the effective date of the housing assistance
payments contracts. The contracts were effective April 1, 2005, but on March 15,
2005, the Authority made retroactive housing assistance payments for August
2004 through March 2005.
6
HUD’s Requirements Were Not
Followed Regarding Project
Selection
The Authority failed to follow HUD’s requirements regarding project selection. It
approved 7 project applications for 11 projects, with 5 projects included on one
application. The requests for proposals were incomplete, and it was unable to
provide an application or other program documentation for 1 of the 11 program
projects. The Authority provided applications for the remaining projects. However,
three of the applications provided were missing the following:
• Two were missing proposed contract rents,
• One was missing a disclosures of possible conflicts of interest,
• One was missing a certification that they were not excluded from Federal
programs,
• One was missing a list of included utilities, and
• One was missing estimated monthly utility costs.
In addition, for the six approved project applications reviewed, the Authority was
unable to provide documentation to support
• When four of the project applications were received,
• How five of the project applications were scored, and
• When the project selections were made.
According to part 2, section 19, of the housing assistance payments contract, no
present or former member or officer of the Authority and no employee of the
Authority who formulates policy or influences decisions with respect to the program
shall have any direct or indirect interest. Based on the project applications, the
Authority had an interest in two of the program projects. The two applications
included documentation stating involvement by the Myers Commons Development
Corporation in the project development. The corporation file detail report for the
Myers Commons Development Corporation listed one of the Authority’s
commissioners as the president and the Authority’s executive director as the
secretary.
In addition, the Authority’s board meeting minutes dated before the publication of
the request for proposals included discussions regarding the development of the
Myers Commons project, indicating that the project development was planned
before the application was received. According to the Authority’s board chairman,
the Authority originally planned to develop the project on its own, but later a third
party decided to develop the project. Further, the Authority’s executive director said
that he spoke with HUD regarding the conflicts of interest. However, he was unable
to provide evidence of the communication with HUD or documentation showing
that the conflict-of-interest restriction was waived. Contrary to HUD’s regulations
7
regarding conflicts of interest, the Authority did not have an independent entity
perform the housing quality standards inspections or determine reasonable rents.
The Authority Executed
Improper Program Contracts
The Authority was unable to provide a housing assistance payments contract for 1 of
its 11 projects. In addition, six of the contracts included units that were occupied by
fair-market renters or were receiving tenant-based subsidies. According to HUD
regulations, these units were not eligible for the project-based program. Four of the
program contracts listed food expenses as a service provided by the owner.
However, according to HUD regulations, food expenses cannot be included in the
rent to owner. Furthermore, one of the contracts provided was missing part 2, which
details the contract definitions and conditions.
The Authority Did Not Perform
Required Reviews and
Inspections
There was no documentation to support that the Authority completed environmental
reviews or submitted requests for release of funds, HUD Form 7015.15, for 10 of its
program projects. In addition, there was no evidence that a subsidy-layering review
was requested for its new construction project. However, the Authority provided
documentation showing that multiple subsidy sources were used to develop the
project.
The Authority was unable to provide rent reasonableness determinations for 18 of its
187 program units. Of the 169 rent reasonableness determinations provided, 157
were completed after the housing assistance payments contracts were executed. The
Authority’s program manager said that rent reasonableness determinations were not
completed for units that did not receive program assistance. However, the units
were included on the housing assistance payments contracts. In addition, the
Authority used one-bedroom apartments as comparable units for the single room
occupancy projects without adjusting the rent amounts. According to HUD
regulations, the maximum allowable rent for single room occupancy units is 75
percent of the zero-bedroom payment standard, or approximately $300 less than a
one-bedroom unit (see finding 2 of this audit report).
Further, the Authority was unable to provide initial housing quality standards
inspection reports for 22 of its 187 program units. Of the 161 initial inspection
reports provided, only 13 were conducted before the housing assistance payments
contracts were executed. The Authority’s program manager said that the units were
inspected prior to paying housing assistance but not prior to signing the housing
assistance payments contracts as required by HUD.
8
For two of its program projects, the Authority used spreadsheets to record the results
of the initial inspections. One of the spreadsheets did not indicate the date on which
the inspections were performed, and the other was dated after the housing assistance
payments contract was executed. Neither of the spreadsheets indicated whether
follow-up inspections were performed for units with deficiencies.
Conclusion
HUD lacked assurance that program funds were used efficiently and effectively.
The Authority did not properly use program funds when it failed to ensure that its
program projects were administered in accordance with HUD’s regulations. It
also lacked an understanding of the program regulations and failed to implement
adequate procedures and controls to ensure that HUD’s requirements were
appropriately followed. It disbursed more than $3.4 million in housing assistance
for program units without documentation to support the projects’ eligibility. In
addition, it made inappropriate retroactive payments totaling $33,632 for units in
two of its program projects.
In accordance with HUD regulations at 24 CFR 982.152(d) on reducing public
housing authority administrative fees, HUD may reduce or offset any
administrative fee to the public housing authority, in the amount determined by
HUD, if the public housing authority fails to perform its administrative duties
correctly or adequately under the program. Because the Authority did not ensure
that its program projects were appropriately administered, it improperly received
$378,358 in administrative fees for the project units with missing supporting
documentation. In addition, it improperly received $1,018 in administrative fees
in association with the improper retroactive payments.
Recommendations
We recommend that the Director of HUD’s Chicago Office of Public Housing
require the Authority to
1A. Provide supporting documentation or reimburse its program $3,861,652
($3,483,294 in housing assistance payments plus $378,358 in associated
program administrative fees) from non-Federal funds for the housing
assistance payments and associated administrative fees for the unsupported
program projects cited in this finding.
1B. Reimburse its program $34,650 ($33,632 in housing assistance payments plus
$1,018 in associated program administrative fees) from non-Federal funds for
the inappropriate retroactive payments and associated administrative fees for
the two projects cited in this finding.
9
1C. Contract with an independent entity to conduct housing quality standards
inspections and determine reasonable rents for the two projects for which the
Authority had conflicts of interest.
1D. Implement adequate procedures and controls to ensure compliance with all
Federal requirements for the operation of its program.
10
Finding 2: The Authority Executed Housing Assistance Payments
Contracts With Inappropriate Contract Rents
The Authority did not comply with HUD’s requirements in determining appropriate contract
rents for program units. This noncompliance occurred because the Authority lacked an
understanding of the program regulations and inappropriately followed advice from county
officials. As a result, it overpaid more than $260,000 in housing assistance.
Contract Rents Were Above
Maximum Allowable
We reviewed the contract rents for all of the Authority’s program units. We
compared the contract rents the Authority used to calculate housing assistance
payments to the maximum allowable rents according to HUD’s regulations. The
contract rents for 6 of the Authority’s 11 projects were inappropriate based on the
housing type. The units were located in single room occupancy projects, and the
maximum permitted contract rent for the units was 75 percent of the applicable zero-
bedroom payment standard or any applicable exception payment standard approved
by HUD. However, the Authority used the one-bedroom payment standard as the
contract rent when calculating the housing assistance payments.
Because the incorrect contract rents were used to calculate the housing assistance
payments, the Authority overpaid $268,795 in housing assistance from January 1,
2005, through March 31, 2010. The Authority’s executive director said that he
read the program regulations but they were unclear. He also said that he was told
by a county official that the one-bedroom payment standard was appropriate for
the program units based on HUD’s community planning and development
regulations. However, there was no evidence that the Authority contacted HUD
to verify whether the one-bedroom payment standard was appropriate for its
program.
Conclusion
The Authority did not properly use program funds when it executed housing
assistance payments contracts with contract rents in excess of the maximum
allowable according to HUD’s regulations. As a result, the Authority overpaid
$268,795 in housing assistance for 6 of its 11 projects.
In accordance with HUD regulations at 24 CFR 982.152(d) on reducing public
housing authority administrative fees, HUD may reduce or offset any
administrative fee to the public housing authority, in the amount determined by
HUD, if the public housing authority fails to perform its administrative duties
correctly or adequately under the program. Because the Authority used
11
inappropriate contract rents to calculate the housing assistance payments, it
improperly received $92,069 in program administrative fees from January 1,
2005, through March 31, 2010, for the overpaid housing assistance.
HUD lacked assurance that the Authority used its program funds efficiently and
effectively since it overpaid $268,795 in housing assistance. If the Authority does
not reduce the contract rents to or below the maximum allowable rent based on
HUD regulations, we estimate that it could overpay $90,600 in housing assistance
over the next year. Our methodology for this estimate is explained in the Scope
and Methodology section of this audit report.
Recommendations
We recommend that the Director of HUD’s Chicago Office of Public Housing
require the Authority to
2A. Reimburse its program $360,864 ($268,795 in housing assistance payments
plus $92,069 in program-associated administrative fees) from non-Federal
funds for the overpaid housing assistance and associated administrative fees
cited in this finding.
2B. Execute new housing assistance payments contracts with contract rents within
the amounts allowable in accordance with HUD regulations to ensure that an
estimated $90,600 in program funds is appropriately used for future payments.
2C. Implement adequate procedures and controls to ensure compliance with
HUD’s regulations regarding the determination of contract rents for its
program.
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Finding 3: The Authority Did Not Properly Select Program Households
From Waiting Lists
The Authority did not comply with HUD’s requirements and its program administrative plan
regarding the selection of program households. It did not administer a waiting list for its
program. Instead, it allowed the program projects to select the households and did not perform
quality control reviews of the selection process. This noncompliance occurred because the
Authority lacked an understanding of its program requirements regarding the selection of only
elderly or disabled applicants. As a result, it inappropriately paid more than $188,000 in housing
assistance and was unable to support the use of more than $57,000 in housing assistance
payments. In addition, the Authority underpaid $200 in housing assistance.
The Authority Did Not
Maintain Program Waiting
Lists
We reviewed the Authority’s waiting list procedures for its program. Contrary to
HUD’s regulations and its program administrative plan, the Authority did not
maintain waiting lists for its program projects. It allowed the projects to select the
households and did not perform quality control reviews of the selection process.
The Authority’s executive director said that the waiting lists were handled by the
individual projects and that he had faith that the projects were being fair. In
addition, there was no evidence that the Authority informed applicants on its
tenant-based program waiting list about their eligibility for the project-based
program.
HUD and the Authority lacked assurance that program applicants were selected
fairly and consistently and in accordance with HUD regulations since the
Authority did not administer a program waiting list and lacked quality controls
over the selection process.
The Authority Failed To Ensure
That Households Met Program
Eligibility Requirements
We reviewed the household files for the households that did not meet the program
eligibility requirements detailed in the housing assistance payments contracts
between the Authority and its program projects. According to the housing
assistance payments contract between the Authority and the Rose Glen project, all
44 units were designated for elderly households, individuals at least 62 years old.
However, 14 nonelderly households were admitted to the program. The Authority
made $188,722 in housing assistance payments for the 14 households from April
1, 2007, through March 31, 2010, although the households did not meet the
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project’s eligibility requirements. The Authority’s executive director said that he
thought “elderly” was defined as households age 55 and older.
According to the housing assistance payments contract between the Authority and
the DuPage Housing Solutions project, all 12 units were designated for disabled
households. However, there was no documentation to support that three of the
households were disabled. The Authority disbursed $57,552 in housing assistance
payments from August 1, 2007, through March 31, 2010, for the three households
without proper documentation to support their program eligibility. In addition,
the Authority failed to include the disability allowance for two households,
resulting in $200 in underpaid housing assistance.
Conclusion
The Authority did not properly use program funds when it failed to ensure that
program households were eligible in accordance with HUD’s regulations, its
program administrative plan, and its housing assistance payments contracts. As a
result, it made $188,722 in housing assistance payments for 14 non-elderly
households that did not meet project eligibility requirements. In addition, it
disbursed $57,552 in housing assistance payments for three non-disabled
households without proper documentation to support program eligibility. Further,
it failed to include the disability allowance for two households, resulting in $200
in underpaid housing assistance.
In accordance with HUD’s regulations at 24 CFR 982.152(d) on reducing public
housing authority administrative fees, HUD may reduce or offset any
administrative fee to the public housing authority, in the amount determined by
HUD, if the public housing authority fails to perform its administrative duties
correctly or adequately under the program. Because the Authority did not ensure
that households were appropriately selected, it improperly received $22,851 for
the 14 households that did not meet eligibility requirements, $5,750 for the 3
households with no support for project eligibility, and $200 for the 2 households
with underpaid housing assistance.
HUD lacked assurance that program funds were used efficiently and effectively
since the Authority made $246,274 ($188,722 plus $57,552) in housing assistance
payments for households not eligible for the program. In addition, HUD and the
Authority lacked assurance that program applicants were selected fairly and
consistently and in accordance with HUD regulations since the Authority did not
administer a program waiting list and lacked quality controls over the selection
process.
If the Authority does not implement waiting list procedures in accordance with
HUD’s regulations and its program administrative plan and ensure that
households admitted to the program meet eligibility requirements, we estimate
14
that it could make $101,064 in housing assistance payments for ineligible
households over the next year. Our methodology for this estimate is explained in
the Scope and Methodology section of this audit report.
Recommendations
We recommend that the Director of HUD’s Chicago Office of Public Housing
require the Authority to
3A. Reimburse its program $211,573 ($188,722 in housing assistance payments
plus $22,851 in associated program administrative fees) from non-Federal
funds for the housing assistance and associated administrative fees for the 14
households cited in this finding.
3B. Provide supporting documentation or reimburse its program $63,302 ($57,552
in housing assistance payments plus $5,750 in program associated
administrative fees) from non-Federal funds for the unsupported payments and
associated administrative fees for the three households cited in this finding.
3C. Reimburse the appropriate households $200 from program funds for the
underpayment of housing assistance cited in this finding.
3D. Reimburse its program $200 in associated administrative fees from non-
Federal funds for the underpayment of housing assistance cited in this finding.
3E. Amend the current or execute new housing assistance payments contracts to
exclude the units occupied by ineligible households and provide those
households eligible for the program with housing choice vouchers.
3F. Implement waiting list and household selection procedures in accordance with
HUD’s regulations and its program administrative plan to ensure that an
estimated $101,064 in program funds is appropriately used for future
payments.
We also recommend that the Director of HUD’s Chicago Office of Fair Housing
and Equal Opportunity
3G. Review the Authority’s household selections to ensure that they comply
with HUD’s requirements. If the Authority fails to comply with HUD’s
requirements, then HUD’s Director should take appropriate action against
the Authority and/or its applicable employee(s).
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SCOPE AND METHODOLOGY
To accomplish our objective, we reviewed
• Applicable laws; regulations; HUD’s program requirements at 24 CFR Parts 5, 982, and
983; and HUD’s Housing Choice Voucher Guidebook 7420.10.
• The Authority’s accounting records, annual audited financial statements for 2007 and 2008,
bank statements, household files, policies and procedures, board meeting minutes for July
2007 through October 2009, organizational chart, program annual contributions contract
with HUD, and program administrative plan.
• HUD’s files for the Authority.
We also interviewed the Authority’s employees and board chairman and HUD staff.
Finding 1
We reviewed 100 percent of the Authority’s program projects that received housing assistance
between July 1, 2007, and August 31, 2009. The 11 program projects contained 187 units.
Based on the missing eligibility documentation, we determined the total housing assistance
payments made from January 1, 2005, through March 31, 2010, were not supported. To prevent
double-counting the funds, we subtracted the amounts from findings 2 and 3, and the improper
funds from our phase 1 audit of the Authority’s program.
Finding 2
We compared the contract rents for the Authority’s program projects with the maximum
allowable contract rents according to HUD’s regulations. We determined that 6 of the 11
program projects had contract rents in excess of the maximum allowable. The Authority
overpaid housing assistance for 38 households residing in the 6 projects from January 1, 2005,
through March 31, 2010.
Based on the average monthly overpayment of housing assistance for the 38 households with
overpaid housing assistance, the total monthly average of overpaid housing assistance was
$7,550. We multiplied the average monthly overpayment of $7,550 by 12 months for a total
estimated overpayment of housing assistance of $90,600 over the next year. This estimate is
solely to demonstrate the annual amount of program funds that could be put to better use if the
Authority implements our recommendation.
Finding 3
We obtained a household report from the Authority for 100 percent of its program units. Based
on the report, 18 households did not meet the program eligibility requirements according to
HUD’s regulations and the Authority’s housing assistance payments contracts. We reviewed the
16
household files for the 18 households and determined 14 were not eligible for the program and
improperly received housing assistance payments between January 1, 2005, and March 31, 2010.
Based on the average monthly improper housing assistance payments for the 14 households that
did not meet program eligibility requirements, the total monthly average overpaid housing
assistance was $8,422. We multiplied the average monthly overpayment of $8,422 by 12 months
for a total estimated overpayment of housing assistance of $101,064 over the next year. This
estimate is solely to demonstrate the annual amount of program funds that could be put to better
use if the Authority implements our recommendation.
We performed our onsite audit work between October 2009 and March 2010 at the Authority’s
office located at 711 East Roosevelt Road, Wheaton, IL. The audit covered the period July 1,
2007, through August 31, 2009, but was expanded as determined necessary.
We conducted the audit in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain sufficient, appropriate
evidence to provide a reasonable basis for our findings and conclusions based on our audit
objective. We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objective.
17
INTERNAL CONTROLS
Internal control is an integral component of an organization’s management that provides
reasonable assurance that the following controls are achieved:
• Program operations,
• Relevance and reliability of information,
• Compliance with applicable laws and regulations, and
• Safeguarding of assets and resources.
Internal controls relate to management’s plans, methods, and procedures used to meet its
mission, goals, and objectives. They include the processes and procedures for planning,
organizing, directing, and controlling program operations as well as the systems for measuring,
reporting, and monitoring program performance.
Relevant Internal Controls
We determined that the following internal controls were relevant to our audit
objective:
• Program operations – Policies and procedures that management has
implemented to reasonably ensure that a program meets its objectives.
• Validity and reliability of data – Policies and procedures that management has
implemented to reasonably ensure that valid and reliable data are obtained,
maintained, and fairly disclosed in reports.
• Compliance with laws and regulations – Policies and procedures that
management has implemented to reasonably ensure that resource use is
consistent with laws and regulations.
• Safeguarding resources – Policies and procedures that management has
implemented to reasonably ensure that resources are safeguarded against
waste, loss, and misuse.
We assessed the relevant controls identified above.
A significant weakness exists if management controls do not provide reasonable
assurance that the process for planning, organizing, directing, and controlling
program operations will meet the organization’s objectives.
18
Significant Weaknesses
Based on our review, we believe that the following items are significant weaknesses:
• The Authority lacked an understanding of program regulations and adequate
procedures and controls to ensure compliance with HUD’s requirements
regarding the administration of its program (see findings 1, 2, and 3).
• The Authority lacked waiting list procedures to ensure that applicants are
treated fairly and consistently, and only eligible households were admitted to
the program (see finding 3).
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APPENDIXES
Appendix A
SCHEDULE OF QUESTIONED COSTS
AND FUNDS TO BE PUT TO BETTER USE
Recommendation Ineligible 1/ Unsupported 2/ Funds to be put
number to better use 4/
1A $3,861,652
1B $34,650
2A 360,864
2B $90,600
3A 211,573
3B 63,302
3C 200
3D 200
3F 101,064
Totals $607,287 $3,924,954 $191,864
1/ Ineligible costs are costs charged to a HUD-financed or HUD-insured program or activity
that the auditor believes are not allowable by law; contract; or Federal, State, or local
policies or regulations.
2/ Unsupported costs are those costs charged to a HUD-financed or HUD-insured program
or activity when we cannot determine eligibility at the time of the audit. Unsupported
costs require a decision by HUD program officials. This decision, in addition to
obtaining supporting documentation, might involve a legal interpretation or clarification
of departmental policies and procedures.
3/ Recommendations that funds be put to better use are estimates of amounts that could be
used more efficiently if an Office of Inspector General (OIG) recommendation is
implemented. These amounts include reductions in outlays, deobligation of funds,
withdrawal of interest, costs not incurred by implementing recommended improvements,
avoidance of unnecessary expenditures noted in preaward reviews, and any other savings
that are specifically identified. In this instance, if the Authority implements the
recommendations, it will ensure that program funds are spent according to Federal
requirements. Once the Authority successfully improves its controls, this will be a
recurring benefit. Our estimates reflect only the initial year of this benefit.
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Appendix B
AUDITEE COMMENTS AND OIG’S EVALUATION
Ref to OIG Evaluation Auditee Comments
21
Ref to OIG Evaluation Auditee Comments
22
Ref to OIG Evaluation Auditee Comments
Comment 1
Comment 2
Comment 3
Comment 4
23
Ref to OIG Evaluation Auditee Comments
Comment 5
Comment 6
Comment 7
Comment 8
Comment 9
24
Ref to OIG Evaluation Auditee Comments
Comment 10
Comment 11
Comment 12
25
Ref to OIG Evaluation Auditee Comments
Comment 13
26
Ref to OIG Evaluation Auditee Comments
Comment 14
27
Ref to OIG Evaluation Auditee Comments
Comment 15
Comment 16
28
Ref to OIG Evaluation Auditee Comments
Comment 17
29
Ref to OIG Evaluation Auditee Comments
Comment 18
Comment 19
30
OIG Evaluation of Auditee Comments
Comment 1 The Authority provided evidence that it published requests for proposals in July
2002 and March 2007. According to HUD’s regulations at the time of the two
requests for proposals, the Authority was required to obtain HUD approval of the
request for proposals, and the proposal was required to include an application
deadline. The Authority was unable to provide documentation to show HUD’s
approval of the requests for proposals, and that the requests for proposals included
an application deadline.
Comment 2 The Authority was unable to provide support for how the projects were selected,
including evaluation sheets for 10 of its 11 projects.
Comment 3 No documentation was provided to support that HUD granted a waiver for the
Authority’s conflict of interest with the Myers Commons project. Further, HUD
had no documentation to support that the Authority contacted it to discuss the
conflict of interest.
Comment 4 Exhibit B of the application for the Rose Glen project listed the Myers Commons
Development Corporation as a general partner and provided the previous
experience for the general partner. According to the corporation file detail report
for the Myers Commons Development Corporation, one of the Authority’s
commissioners is the president, and the Authority’s executive director is the
secretary.
Comment 5 While we appreciate the Authority’s attempt to amend the housing assistance
payments contracts, the contracts were not amended in accordance with HUD’s
requirements.
Comment 6 The Authority is correct that a subsidy-layering review is only required for its
new construction project. HUD’s regulations at 24 CFR 983.55(b) state that
before executing an agreement, the Authority must obtain a subsidy-layering
review from HUD or a HUD-approved entity. However, the Authority did not
provide support that a subsidy-layering review was completed by the local
government grantors of the financing. The Authority provided only page 6 of an
11-page application, in which item 21 listed the sources of funds for the project.
Comment 7 HUD’s regulations at 24 CFR 58.35(a)(3) refer to the rehabilitation of buildings.
The Authority’s projects are existing projects except for Myers Commons.
According to HUD’s regulations at 24 CFR 983.58(d), the Authority may not
enter into an agreement or housing assistance payments contract until either (i) the
responsible entity has completed the environmental review, (ii) the responsible
entity has determined the project exempt, or (iii) HUD has performed an
environmental review.
31
Comment 8 The Authority provided documents to address the error. However, it also
provided documents that contradicted the Authority’s comment regarding a
scrivener error. Therefore, we made no adjustment to the finding.
Comment 9 We revised the audit report to reflect the supporting documents provided by the
Authority since the issuance of the discussion draft audit report.
Comment 10 According to the applications for the Rose Glen and Myers Commons projects,
the Authority had a conflict of interest with both projects. It was unable to
support that the conflict was waived by HUD.
Comment 11 The audit report was updated based on all documents provided by the Authority.
The items listed as missing or incomplete in this audit report had not been
provided by the Authority at the time of report issuance.
Comment 12 HUD’s regulations at 24 CFR 983.204(a)(2) state that the Authority may not enter
into a housing assistance payments contract for any contract unit until the
Authority determines that the unit complies with housing quality standards. Of
the 187 program units, the Authority was unable to provide initial housing quality
standards inspection reports for 22 units. Of these 22 units, 9 received housing
assistance from the Authority. Units occupied by fair-market renters should not
be included on the housing assistance payments contract, and we recommended
that the contract be amended to exclude these units.
Comment 13 The spreadsheet the Authority used to document the inspections for the Myers
Commons project omitted three of the project’s units. In addition, the Authority
did not provide initial inspection reports for 12 units, of which 3 were not listed
on the inspection schedule, 2 were listed as passed on the inspection schedule, and
7 were listed as failed on the inspection schedule.
Comment 14 HUD’s regulations at 24 CFR 982.609(b) state that the following additional
performance requirements apply to congregate housing: (1) the unit must contain
a refrigerator, and (2) there must be central kitchen and dining facilities on the
premises.
Comment 15 HUD’s regulations at 24 CFR 982.206 state the opening and closing of the
waiting list that must be followed. These regulations apply to both the tenant-
based and project-based voucher programs.
Comment 16 The applicable program regulations for the project-based voucher program are
located at 24 CFR Parts 983 and 982. According to HUD’s regulations at 24 CFR
982.4, which refers to 24 CFR 5.100 for the definition of an elderly person, an
elderly person is an individual who is at least 62 years of age. In addition, HUD’s
regulations at 24 CFR 5.403 state that an elderly family means a family in which
the head, spouse, or sole member is a person who is at least 62 years of age.
32
Comment 17 We cited the Authority for not enforcing its housing assistance payments contract
requirements. HUD Form 52530B, Project-Based Voucher Program Housing
Assistance Payments Contract, section 7c, states that each contract unit for which
the owner is receiving housing assistance payments is leased in accordance with
the housing assistance payments contract. The housing assistance payments
contract for the DuPage Housing Solutions project states that the units are
designated for disabled households, and the housing assistance payments contract
for the Rose Glen project states that the units are designated for elderly
households.
Comment 18 We removed the reference to HUD’s regulations at 24 CFR 983.51(d) from the
report. HUD Form 52530B, part 19, states HUD’s requirements regarding
conflicts of interest and requires a waiver of the provision. We removed the
reference to HUD’s regulations at 24 CFR 983.152(c)(1) from the report.
However, HUD Form 52531A lists the required elements of the agreement to
enter into a housing assistance payments contract. HUD’s regulations at 24 CFR
983.203 apply to the housing assistance payments contracts executed after
October 2005. Before that date, HUD Forms 52530A and 52530B list the
required elements of the housing assistance payments contract.
Comment 19 HUD’s regulations at 24 CFR 983.3 provides a definition of a public housing
authority-owned unit. However, HUD Form 52530B, section 19, states HUD’s
conflict-of-interest provision.
33
Appendix C
FEDERAL REQUIREMENTS AND THE AUTHORITY’S
PROGRAM ADMINISTRATIVE PLAN
Finding 1
HUD’s regulations at 24 CFR 983.2(a) state that Part 982 is the basic regulation for the tenant-
based voucher program. However, paragraphs (b) and (c) of this section describe the provisions
that do not apply to the Project-Based Voucher program. Therefore, the rest of Part 982 applies
to the program.
HUD issued a notice for fiscal year 2001, Revision to the Public Housing Agency Project-Based
Assistance Program, Initial Guidance, in the Federal Register, dated January 16, 2001, stating
that as in the tenant-based voucher program, a public housing authority must inspect 100 percent
of the project-based voucher units before entering into the housing assistance payments contract
and may only enter into a housing assistance payments contract for units that fully comply with
the housing quality standards.
HUD’s regulations at 24 CFR 983.53(d) state that before a public housing authority selects a
specific unit to which assistance is to be attached, the public housing authority must determine
whether the unit is occupied and, if occupied, whether the unit’s occupants are eligible for
assistance. The public housing authority must not select or enter into a housing assistance
payments contract for a unit occupied by a family ineligible for participation in the Project-Based
Voucher program.
HUD’s regulations at 24 CFR 983.58(d)(1) state that the public housing authority may not enter
into an agreement or housing assistance payments contract with an owner, and the public
housing authority, the owner, and its contractors may not acquire, rehabilitate, convert, lease,
repair, dispose of, demolish, or construct real property or commit or expend program or local
funds for project-based voucher activities under this part, until (i) the responsible entity has
completed the environmental review procedures required and HUD has approved the
environmental certification and request for release of funds.
HUD’s regulations at 24 CFR 983.59(b) state that in the case of public housing authority-owned
units, the following program services may not be performed by the public housing authority but
must be performed instead by an independent entity approved by HUD: (1) determination of
rent to owner for the public housing authority-owned units and (2) inspection of public housing
authority-owned units.
HUD’s regulations at 24 CFR 983.103(a)(2) state that if the units to be assisted already exist, the
public housing authority must inspect all of the units before the proposal selection date and must
determine whether the units substantially comply with the housing quality standards. To qualify
as existing housing, units must substantially comply with the housing quality standards on the
34
proposal selection date. However, the public housing authority may not execute the housing
assistance payments contract until the units fully comply with the housing quality standards.
HUD’s regulations at 24 CFR 983.103(b) state that the public housing authority must inspect
each contract unit before execution of the housing assistance payments contract. The public
housing authority may not enter into a housing assistance payments contract covering a unit until
the unit fully complies with the housing quality standards.
HUD’s regulations at 24 CFR 983.203 state that the housing assistance payments contract must
specify (a) the total number of contract units by number of bedrooms; (b) information needed to
identify the site and building or buildings; (c) information needed to identify the specific contract
units in each building; (d) services, maintenance, and equipment to be supplied by the owner
without charges; (e) utilities available to the contract units; (f) features provided to comply with
program accessibility requirements; (g) the housing assistance payments contract term; (h) the
number of units in any building that will exceed the 25 percent per building cap; and (i) the
initial rent to owner.
HUD form 52530B, Project-Based Voucher Program Housing Assistance Payments Contract,
section 19, states that no present or former member or officer of the public housing authority, no
employee of the public housing authority who formulates policy or influences decisions with
respect to the Project-Based Voucher program, and no public official or member of a governing
body or State or local legislator who exercises functions or responsibilities with respect to this
program shall have any direct or indirect interest, during his or her tenure or for 1 year thereafter,
in the program or in the housing assistance payments contract.
Finding 2
HUD’s regulations at 24 CFR 982.4(b) include the following definitions. Congregate housing is
housing for elderly persons or persons with disabilities that meets the housing quality standards
for congregate housing. A group home is a dwelling unit that is licensed by a State as a group
home for the exclusive residential use of 2 to 12 persons who are elderly or persons with
disabilities. Single room occupancy housing has units that contain no sanitary facilities or food
preparation facilities or contain either but not both types of facilities.
HUD’s regulations at 24 CFR 982.604(a) state that for a person residing in single room
occupancy housing, the payment standard is 75 percent of the zero-bedroom payment standard
amount on the public housing authority’s payment standard schedule. For a person residing in
single room occupancy housing in an exception area, the payment standard is 75 percent of the
HUD-approved zero-bedroom exception payment standard amount.
HUD’s regulations at 24 CFR 982.609(b) state that the following additional performance
requirements apply to congregate housing: (1) the unit must contain a refrigerator of appropriate
size.
35
Finding 3
HUD’s regulations at 24 CFR 5.100 state that elderly person means an individual who is at least
62 years of age.
HUD’s regulations at 24 CFR 5.403 state that a disabled family means a family in which the
head, spouse, or sole member is a person with disabilities. It may include two or more persons
with disabilities living together or one or more persons with disabilities living with one or more
live-in aides.
HUD’s regulations at 24 CFR 5.403 state that elderly family means a family in which the head,
spouse, or sole member is a person who is at least 62 years of age. It may include two or more
persons who are at least 62 years of age living together or one or more persons who are at least
62 years of age living with one or more live-in aides.
Chapter 20, section B, of the Authority’s administrative plan states that a site-specific waiting list
for each respective project-based assistance project will be maintained. All applicants on the
Authority’s tenant-based waiting list will be notified of their opportunity to be listed on
individual project-based assistance lists, for which they may be eligible, as such project-based
assistance projects are approved and made available for occupancy.
36